Category Archive: Online banking
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Changes Ahead for the future of Loyalty & Rewards
NYPAY hosted a panel of senior rewards and loyalty experts to discuss “The Future of Loyalty and Rewards” at a gathering of senior payment industry executives on June 13 at the offices of AllianceBernstein. The insights provided by the gathering of senior industry leaders proved to be as interesting as those of the rewards and loyalty leaders sitting on the panel.
The capacity crowd of payments industry professionals that filled the meeting space represented firms coming from all aspects of the industry, including loyalty companies, startups, advisory firms, issuers, program managers, networks, and merchants. Among the senior executives attending and providing perspectives on the changing business of the loyalty industry were Charlie Kim, CEO of NextJump, Joe Salesky, Founder and Chief Strategy Officer for FreeMonee and Schwark Satyavolu, CEO of BillShrink. The high turnout and broad array of attendees reflected the rapid and dramatic changes sweeping the payments industry.
Panelists included a banker, a merchant, a reward and loyalty vendor and a leading industry analyst:
- Jason Brooks, SVP, Cardlytics
- Arnold Lewis, VP Customer Loyalty and Rewards, Macy’s
- Patricia Hewitt, Director / Analyst, Mercator Advisory Group
- Amy Harris, SVP, Loyalty Marketing and ThankYou, Citi
The panel provided their own perspectives of the trends and future of the rewards and loyalty business, and a healthy back and forth exchange ensued between the panel and attendees, resulting in a lively discussion. With long-held assumptions being challenged, expert opinions vary widely; given the quality of both panel and attendees, a wide variety of insightful views were aired.
The major observations highlighted during the session included:
- The speed at which the loyalty space is evolving is breathtaking. Merchants have seen their choice of merchant-funded rewards options grow from the classic loyalty programs (buy 10 coffees, get one free) to incentive programs (such as 50% discounts from Groupon). For merchants, the cost of loyalty programs used to be 1%; as a result of new reward models from companies like Groupon/LivingSocial, consumers are now expecting 30-50% off purchases.
- How shoppers see and value rewards programs are beginning to negatively impact their view of the brand. Loyalty programs grew in importance during the economic downturn as brands used loyalty to gain much needed increases in sales. But “flash deals” have begun to erode brand value as consumers have start valuing brands at 50% less. Is a better strategy to offer point-based rewards that doesn’t reduce the value of the product or brand?
- It has become increasingly difficult to differentiate one reward program from another. The average consumer now subscribes to 11 reward programs compared to 3 just a handful of years ago. One senior executive referred to recent studies showing that points have become currency and many consumers build rewards into their own personal financial management.
- Panelists agreed that consumers have increasingly shown less tolerance in lag time and demand more choices and interactivity with merchant discounts. Consumers are interested in merchant incentives that have moved from being cumulative, redemption-oriented to real time interactive.
- Loyalty programs have evolved from being transaction and payment focused, to being behavior and activity (merchant) focused. Sending a non-targeted offer to all prospects leads to costly behaviors or negative goodwill (sending a vegetarian a free ticket to the local meat market). However, providing targeted, local rewards that deliver a high level of value to consumers benefits all parties to the program.
The consensus was that the industry will continue to see more loyalty and rewards models develop in the near-term before the “consumer speaks.” We are still in the “wild west” days of rewards and loyalty where new, innovative models are being tested, and a few clear winners will emerge. It is clear that targeted, immediate rewards that incent the desired purchase behavior will be highly valued by merchants and issuers. The remaining question is which loyalty model will win the consumers’ hearts and minds long-term.
About NYPAY
NYPAY is a New York area industry group whose primary goal is to provide face-to-face networking and idea exchange for payments professionals. NYPAY consists of hundreds of senior-level payment industry professionals. NYPAY continues to bring together some of payment’s leading forward thinking minds to advance the conversation and stimulate innovation within the payments industry. For information on future events and to join NYPAY, visit NYPAY on LinkedIn.
Banks looking for alternate sources of revenue; Customers willing to pay for Simplicity – $2.6B opportunity
Regulation is making banks react in different ways. One big bank is looking to trim costs by cutting jobs in the consumer and small business units. While others majors are looking to find alternate sources of revenue. Almost all national banks have started to take away free checking while a few others are starting to charge a $5 ATM fee for use by non consumers. Trouble is that consumers have gotten used to everything for free (online, mobile, bill pay, remote deposit capture) and it will take a while before they realize they have to pay for using the bank’s services.
At the same time, there is an opportunity to increase pricing/charge more by making things simpler and making it easier for consumers to manage their financial lives.
According to Siegel+Gale, which surveyed 6,000 consumers in seven countries to gauge perceptions of brand simplicity, U.S. consumers would be willing to pay 4% more for bank products and services if only they came with clearer rules, streamlined options and fewer hassles.
Not surprisingly, in the survey, the lower the income bracket of respondents, the less willing they would be to pay more for simpler products, services and communications from banks. Among respondents with household income of at least $150,000, 17% said they would pay a simplicity premium, versus 5.9% among respondents with household incomes under $20,000.
Below is the ranking from the American Banker article.
Mobile is Not a Step Child of Online Banking
Use of Mobile Banking is projected to grow three fold in the next three years (Source: TowerGroup). The data traffic at AT&T (courtesy the iPhone) has grown 50X in the last 3 years. Mobile will become a key channel for customers to transact with the bank.
That said, most banks are still tip-toeing their way into mobile banking and many others view mobile banking as a subset of online banking (think about where mobile banking resides within your organizational structure. Often, I have seen this as a subset of the responsibilities of the person/team responsible for the online channel).
I have heard bankers complain that it is very difficult to get funding and prove ROI for the mobile channel. I have also heard the argument that customers don’t really want mobile banking. And finally, some say that they will evaluate the mobile channel once they are “done” with online.
Well, the truth is, that customers have been slow to adopt to mobile banking. Let us first look at some of the issues with the mobile banking adoption rate:
- Service is not differentiated: most banks offer a subset or similar range of services on the mobile as they do on the online channel. Most mobile banking applications today offer transaction viewing, bill payment, funds transfer and ATM locater features.
- Mobile browsing costs: customers had to watch out for how much data they downloaded on their mobile devices as telcos were charging for data usage by the drink. Flat fee unlimited data usage plans are becoming common now.
- Platform Usability: Until the iPhone existed, accessing bank websites through the mobile web browser was a pain in the neck. The iPhone and now the Android powered phones have made the user experience more enjoyable. Add to that, the bank specific phone apps has made the experience faster, feature rich, secure and with a better UI.
- Lack of awareness: many a times, customers are not aware that their bank offers mobile banking either through text, web or applications.
There is a strong case for Mobile Banking ROI. On the costs side, a call center transaction costs the bank $3.75, an IVR transaction costs $1.25. A transaction through the mobile channel costs the bank $0.08. So more frequent use of the mobile channel will reduce calls to the call center and IVR thereby reducing costs.
On the revenue side, mobile banking appears to cause an increase in profitability. Banking customers who use the mobile channel are more frequent users of the banking channels and are less likely to attrite. They have more Checking accounts and fewer Borrowing accounts. They are higher income levels and carry higher checking balances but lower savings balances.
And the good news is that things are changing FAST. I recently attended an ABA Mobile Banking Webcast and the ROI numbers are striking:
MOBILE BANKING ROI
Bank of America announced in Fall 2009 that it is planning to close 10% of its branches due to increased customer usage of online and mobile banking
- BoA has about 3.5 million mobile banking customers, equating to about 12% of their online banking customer base
- BoA added 150,000 new checking accounts due to mobile offering
Huntington Bank has seen
- Text bankers are 13% more profitable than the average checking client
- Mobile browser bankers are 38% more profitable than the average checking client
- DDA related inquiries to the call center have dropped by 21%
USAA has over 1 million Mobile Banking users, representing about 14% of its total clients
- 23 million logins in 2009
- Over $300 million deposited via iPhone since launch (they have the remote deposit check capture feature through the iPhone)
- Handling more contacts than IVR
What banks need to do while evaluating the mobile channel:
- Don’t Jump Into It: Do not consider the mobile channel because of the hype and it is the “cool thing to do”. Think how the mobile can add value to the customer and to the other channels.
- Think Multichannel: Some banks still consider mobile banking as being isolated from other channels or their overall multichannel strategy. The mobile can serve as an additional authentication/security channel when you login online or you get a code on your iPhone bank app that you need to enter as soon as you swipe your card and enter the PIN at the ATM.
- Don’t Think Online Banking: My needs as a customer may be different when I login through the mobile device vis-a-vis my computer or the ATM channel. The mobile is the most personal channel available yet to marketers. The layout, design and features (example remote deposit check capture) available on the mobile must be different than what is available online.
- Don’t Think Mobile Banking: Don’t think of mobile as mobile banking alone. Think of mobile as the platform for mobile financial services. The mobile will eventually evolve into a channel for funds transfers (P2P and other domestic transfers), NFC solutions like contactless payments; and eWallets that store all the cards/rewards info with integrated marketing/payment.
- It Is Never About Technology: One thing I have learnt working during my career with technology consulting firms is that it is never really about the technology. Initiatives fail not because they did not have the latest and best technology, but because they were too technology focused and failed to get buy-in or sponsorship from a business side executive.
Online Banking: Communities Help Meet Psychological Needs
In my last post I introduced how the transformation within Internet Banking can be mapped to Maslow’s hierarchy of needs model.
In this section, I offer some thoughts on what banks can do to tap into the Psychological Needs of the customer. Psychological need can be defined as the need for assimilation and for differentiation.
Assimilation refers to the desire to feel ‘inclusion within larger collectives’, whereas differentiation refers to a desire to ‘distinguish [oneself] from any other persons in the social context’.
Well, in the financial services context, banks can achieve a lot of this by creating communities of consumers (My previous post on creating communities is a good start). Following are some thoughts on the various activities community members can engage in:
- Financial Planning: Members can offer each other support and advise to meet their financial goals. To make it simple, each member (say A) will be allowed to post their top 3 goals on their profile with a tracker to see how they are doing to meet their goals. Other members can offer tips and support to keep the member A on path to achieving her goal. To create more value, the banks can “lend” their financial planners to provide professional guidance to the community members. Members can pay the bank for more tailored or 1:1 advice, creating a revenue stream for the bank.
- Peer to Peer lending: Banks can offer peer to peer lending services by allowing their community members to lend to each other. Banks already have enough information about the customer to assign members a credit score (based on account balances, number of missed payments, number of times account was overdrawn etc.) and ascertain credit worthiness of the borrower. Banks can also compete with individual lenders to offer credit to the most worthy borrowers.
- Comparison Budgeting: Nothing gives us more satisfaction than finding out how we did relative to our neighbor or co-worker or friends. Extending that to that financial context, banks can allow community members to compare their spend on particular items (grocery, utilities, entertainment, dining etc) to the average spend in each category by their community.
- Test Platform: From a bank’s perspective, they can use the different communities to test out new products and service ideas before rolling them out in the market. The community members being the more engaged customers are more likely to give the bank quick and honest feedback.
- Special Interest Communities: Banks can create communities around different themes and interest areas. One such community could be “How I got out of debt”: Community members can share real life examples on how they got out of the debt hole and are staying on a path of financial freedom. Another example could be a small business community. Open Forum is a good example of a social community sponsored by American Express that targets small business owners and provides videos, articles, expert blogs, success stories and advice from other business owners and limited networking opportunities. It functions as a hybrid between a networking community and a conventional portal.
Banks can gain by offering customized products and services to such special interest communities, but more of that in the next post.
Previous Posts in this series
Part 1. Online Banking and Maslow’s Hierarchy of Needs
Online Banking and Maslow’s Hierarchy of Needs
According to a study by Javelin Strategy & Research, eight out of ten US households now bank online, with 60 per cent using such services weekly and seven in ten utilizing them to pay their bills on a monthly basis. For banks, the opportunity is huge. Online banking customers are more profitable, carry more balances and have a lower probability to move to a competitor bank.
Firms like Zopa, Smartypig, Mint and Wesabe are pushing the envelope of what a traditional bank can or is expected to do.
